Friday the 16th saw benchmark indices hit lifetime closing highs. They did this a little over six months later after both intraday and closing highs were established on December 1, 2022. Each time that such milestones are established, different sectors are in the forefront or are laggards.

The highs made on BSESENSEX were at 63,384.58 points while it was 18,826 points on NIFTY. The levels on the December 1, 2022 were at 63,284.19 points and 18,812.50 points respectively. It is worth noting and highlighting that on March 20, 2023, markets had bottomed out at 57,084.91 points and 16,828.35 points respectively.

In short, from December 22, we lost roughly 6,000 points on BSESENSEX and 2,000 points on NIFTY in about 3.5 months and gained all of it back in the next three months. The questions that come to mind are primarily two. What next and is this rally sustainable?

The rally has been built quite painstakingly and we still don’t have key sectors firing. Second, over the last 12-18 months, inflation and rising interest rates have been a key factor for global markets. Fortunately, on both these counts India has fared well or better in comparison.

Interest rates at 6.5 per cent seem to have peaked out and are likely to remain flat for some time before any change may be expected. At the same time the US FED rate at 5-5.25 per cent seems at elevated levels if looked at historically.

What is interesting from an economic perspective is the fact that the differential between Indian and US interest rates is between 1.25-1.5 per cent, which in my belief is the lowest over the last 25 years or maybe more.

The RBI has been monitoring the inflation levels quite vigorously and though it would be happier if it comes down further, it is still under a reasonable check. It gives comfort to the Central bank and causes no anxiety to them. To add to this is the fact that the Indian economy seems to be performing creditably given the tough global situation.

Post-Covid the rise in commodity prices, international freight rates now seem to be a thing of the past and they are near normal. India’s GST collection is now averaging at 1.5 lakh crore mark monthly and it would be appropriate to expect that by the end of the current financial year we should start hitting the 1.8 lakh crore mark. Tax collections are also at very decent levels indicating that corporate India has performed well.

FPIs have turned buyers and have been net buyers over the last three-four months. Their fund infusion coupled with record inflows through SIPs have helped domestic institutions chip in as well. The Indian Rupee has been stable as well.

Coming to the way forward, the biggest negative is the outbreak of monsoon and how it would fare across the country. While it’s early in the day and things can change dramatically as the days progress, this can be the joker in the pack. The substantially below average monsoon could raise inflation and see a price spiral. It would hit ‘BHARAT’ quite badly.

On the market front we still have a small distance to go in creating lifetime intraday highs which seem a formality and should happen within this week. Normally when such a milestone is achieved there is a possibility of a spillover of 3 per cent happening.

This would translate to about 2,000 points on the BSESENSEX and roughly 600 points on NIFTY. Once this is achieved, things would have to be relooked and a fresh call taken about markets. The trigger at that time could be the April-June quarterly results which would become due in about three weeks’ time.

Among the sectors that have been lagging behind in the rally are Pharma and IT. Pharma is showing early signs of reviving while IT could take some time. The banking is still leading the way and would have to continue to be the leader as it is the heaviest in the NIFTY weightages at 42 per cent.

This rally has retail laughing as well and midcap and Smallcap are rising faster and doing really well. The breadth of the market has expanded substantially. Things are looking good and its not time to sound the bugle yet. However, a small note of caution would be to look at what the company does as far as the Smallcap and Midcap stocks are concerned before investing.

(The story has been published via a syndicated feed.)